N e t w o r k - L e v e l A nal y s i s
A
n Inclusive and Data-Rich Approach
to Infrastructure Development
By Israr Ahmad and John Murray
T
he state of a community’s capital infrastructure is
inextricably linked with its quality of life. Strategic
asset management has become a critical agenda item
for most developed and stable economies around the world.
As the relationship between infrastructure and economics
becomes better understood, the prioritization framework for
infrastructure projects is changing from an exclusive focus on
financial cost-benefit analysis to one that relies on a variety of
community and organizational key performance indicators,
economic output metrics, environmental indicators and other
socio-economic drivers. Infrastructure appraisals and project
prioritization have shifted from emphasizing individual, assetlevel studies to a holistic, network-level analysis, with the goal
of more accurately quantifying the true socio-economic value
of all infrastructure projects.
according to the Federation of Canadian Municipalities. This
imbalance severely impedes fiscal pragmatism at the municipal level. Most municipalities lack the financial capacity to
ensure that infrastructure growth requirements and service
enhancements are accounted for and long-term replacement needs are met. Instead, they aim to fund their annual
operating costs. Providing levels of service that do not reflect
fiscal capacity is a serious risk to municipal financial sustainability, and infrastructure lifecycle costs can be a big part of
that. As a result, municipal decision makers need to make
an effort to go beyond minimal infrastructure funding levels and work toward achieving incremental improvements
in sustainability.
implementation. There will be pivotal short-term victories,
including better understanding of the organization’s existing
capacity and a more comprehensive dataset on the state of
existing infrastructure. The rewards to the entire organization
in return for the time and intellectual capital invested can be
substantial. Exhibit 1 explains the value of adopting networklevel analysis of a government’s infrastructure investment.
The Canadian Infrastructure Report Card, an annual surveybased analysis of Canada’s infrastructure, suggests that 12
percent of the country’s infrastructure (valued at approximately C$141 billion) is in very poor or poor condition.
Further, according to the same study, seven of the eight
categories of infrastructure covered will decline in condition based on current reinvestment rates (i.e., the percentage of an asset’s replacement value budgeted annually for
the purpose of rehabilitating, reconstructing, or meeting
replacement needs).1 The situation in the United States
is no different; $3.6 trillion in infrastructure investment
Some local governments are able to set aside funding to
counter inflation and meet renewal requirements, which
A cross-disciplinary, long-term approach such as this
helps extend the useful life of capital assets, reducing both
requires robust data on not just capital assets and their netcurrent costs and the burden on future generations of
works, but also on the organization itself and the environment
residents. However, most municipaliin which it exists. Technology is needties struggle to meet even day-to-day
ed to improve speed and efficiency
tactical investment needs related to
whenever possible. Lastly, high-level
A cross-disciplinary, long-term
infrastructure, let alone being able to
guidance is needed to unify technolapproach requires robust
attempt a strategic makeover.
ogy and data in an effective way.
data on not just capital assets
Investment
in
infrastructure
Network-level analysis relies on coldepends
on
a
number
of elements,
and their networks, but
laboration among multiple departincluding political considerations and
also on the organization
ments, including senior management;
risk tolerance in individual municidepartment heads from finance,
itself and the environment
palities. Because there are no industry
engineering, and public works; and
standards for target investment rates,
in which it exists.
elected leadership. Time and effort
the most influential of these factors is
are also needed, as such an approach
the amount of funding available—and
involves building an asset managethere is a severe lack of it, in both
ment practice from the ground up
Canada
and
the
United
States.
and generally spans two years, including development and
INFRASTRUCTURE CHALLENGES
In Canada, local governments own 60 to 70 percent of all
public infrastructure, yet collect only 8 percent tax revenues,
October 2016 | Government Finance Review 9
Exhibit 1: Top Value Propositions for Network-Level Analysis
How a contemporary, multi-year approach to asset management appeals to key decision-makers
Value for City Managers and
Value for Directors of Finance
Chief Administrative Officers
n
n
n
elps align long-term budget
H
projections from the budget staff with
the long-term infrastructure needs
determined by the public works staff.
Creates more realistic funding targets.
reates organizational awareness and
C
flexibility, which allows municipalities
to respond swiftly and systematically
to government grants, and maximize
expenditures within the established
parameters.
n
n
n
n
n
n
rovides a review of existing
P
infrastructure management practices
and policies so they can be better
aligned with key objectives in
a community’s strategic plan.
n
uantifies costs accurately and
Q
allows decision makers to track
assets and costs for both operational
and management purposes.
reates a best practice-based
C
methodology that allows public works
officials to collect and communicate
asset data to finance executives.
etermines the financial requirements
D
of infrastructure, based on life-cycle
costs. Tightens budget forecasts
because requirements are based
on real field information.
10 Government Finance Review | October 2016
n
n
n
eeps annual requirements
K
from being either overstated
or understated.
E stablishes capital management best
practices over the lifecycle of the
infrastructure and identifies alternate
technologies that can significantly
reduce the cost of capital and
maintenance programs.
Improves the accuracy of asset
reporting, which enables better
decision making.
evelops a more efficient allocation
D
of resources (e.g., needs of field staff
needs over the medium to long
term), allowing department heads to
schedule and prioritize crew activities
more effectively.
S trategically allocates revenue
to particular asset classes, based
on organizational priorities.
elps analyze a municipality’s financial
H
capacity (e.g., its ability to borrow
or take on debt, use or increase
reserves, and determine potential
revenue possibilities and expenditure
requirements).
will be needed by 2020, according to the American Society
of Civil Engineers.2 Overall, the group gave U.S. infrastructure
a D+ on its most recent “report card.”
As governments have increased their
commitments to tackling infrastructure deficits, advances in asset management processes, technology, and
knowledge have also provided a great
deal of data that organizations can
Value for Directors of Engineering
and Public Works
n
reates stability in the capital
C
program by allowing public works
staff to better forecast mediumterm expenditures, leading to more
strategic discussions with the finance
department.
use for decision making. A recent study by Public Sector Digest
assessed the state of roads and bridges in 93 Ontario municipalities by aggregating data on an asset-byasset life-cycle and condition analysis.3
Technology is needed to
The study found that C$5.1 billion is
needed to replace roads and bridges in
improve speed and efficiency
the sample jurisdictions, and an addiwhenever possible.
tional C$462 million is needed annually
to meet future replacement needs.
n What are the organizational
However, the same study determined that deficit estimates may be
objectives?
There
will
be
pivotal
shortoverstated, given the lack of comn What assets are owned and what
term victories, including a
prehensive field inspection data. In
services do they provide?
calculating accrued backlogs and
better understanding of the
n What is the asset’s value to the
annual funding shortfalls, the majority
organization and to the community?
organization’s existing capacity
of municipalities in Canada rely on the
n What is the asset’s impact to service
and a more comprehensive
age of assets as an approximation of
delivery (performance and risk)?
their remaining useful lives. In Public
dataset on the state of existing
n What are the life cycle needs and
Sector Digest’s analysis, remaining
infrastructure.
the options available for meeting
useful life based strictly on age was 23
them?
to 29 points less than remaining useful
n What are the work/budget prioritilife based on actual field inspections.
Using age-based data therefore overzation processes?
stated the amount of tax increases that would be required to
n What are the financial strategies?
meet the related financial demands.
n What level of service is attainable?
A SHIFT IN THINKING
When it comes to developing asset management plans
for local governments, the discipline has seen a philosophical shift. It is no longer asset-centric. Instead, it places services and citizens at the center of all strategic analysis. This
approach lends itself to more advanced and holistic appraisals of infrastructure projects, requiring a strategy and plan at
the asset network level rather than the individual project or
asset level.
This shift changes the magnitude of investment that municipalities, states, and federal governments make in an essential
way, as assets and projects are no longer viewed in isolation
from each other, from the community, or from the local and
regional economy. Instead, they’re treated as elements of
a dynamic, integrated network — literally and figuratively
— and the fundamental question decision makers ask themselves changes from which project should take priority to why
these projects were recommended in the first place.
ASSET MANAGEMENT ROADMAP
The most feasible way to develop an asset management
program is to follow an incremental critical activities path,
measuring progress using key milestones. This “roadmap”
approach relies on dialogue between multiple stakeholders,
including administration and its governing body. In these
discovery sessions, department heads learn more about each
other’s priorities and challenges and, ultimately, become
more unified in their asset-management pursuits at the corporate level. This approach also allows decision makers to more
Under this service- and citizen-centric model of asset
management, capital maintenance is based on risk-to-service delivery. Further, serious consideration is given to the
consequences of asset failure along multiple dimensions,
including economic, financial, social, and environmental.
Key questions municipalities must ask themselves as they
develop their asset management plans and programs include
the following:
October 2016 | Government Finance Review 11
optimally allocate their resources
toward asset management programs
without increasing staff workload. The
roadmap generally starts with assessing the current level of asset management maturity at the municipalities,
concluding with a comprehensive
asset management plan. Later stages
of the roadmap involve monitoring,
reviewing, and retooling as needed.
Most municipalities struggle
to meet day-to-day tactical
investment needs related to
infrastructure, much less have
the resources to attempt
a strategic makeover.
Designing and implementing an
inclusive roadmap approach instead
of an asset-centric, siloed strategy requires broad consensus
and appeal within the municipal organization. It is the only
way to forge a more defensible link between infrastructure
investment levels, the municipality’s overarching strategic
plan, and citizens’ capacity to finance the investments. It
is also critical in ensuring that communities can secure
the maximum total value for their capital assets at the lowest life-cycle cost. The core component of this approach
includes organizational cognizance, data as a foundation,
condition assessment protocols, risk and criticality models, life-cycle management, a financial strategy, and levels
of service framework.
Organizational Cognizance. Stability requires an assetmanagement policy that clearly states program objectives,
roles, and responsibilities, and is vetted through senior
management and endorsed by the jurisdiction’s governing
authority. The policy becomes a guideline for employees to
follow in making decisions. It provides a framework for the
delegation of decision making, eliminates misunderstandings, reduces uncertainties, and enables the organization to
meet its goals and objectives.
Data as a Foundation. Valid and accurate data comprise
the foundation of sound decision making. Jurisdictions need
to collect complete and accurate data for all municipal infrastructure and to maintain this accuracy and currency over
time. In addition, to avoid misuse of scarce resources, they
must determine the optimal composition of the data set.
Condition Assessment Protocols. Municipalities need
to fully understand the performance and condition of their
assets. All management decisions regarding future expen-
12 Government Finance Review | October 2016
ditures and field activities should
be based on this knowledge. An
incomplete understanding of an
asset may lead to ill-timed failure or
premature replacement. A robust
condition assessment protocol will,
over time, also dictate which assets
receive field inspection resources
based on the value they provide
to the community.
Some benefits of holistic condition
assessment programs within the overall asset management process include:
n
n
n
n
n
nderstanding how the overall network condition leads
U
to better management practices.
reventing future failures and providing liability protecP
tion.
stablishing proactive repair schedules and preventive
E
maintenance and rehabilitation programs.
xtending asset service life and thereby improving level
E
of service.
nabling accurate asset reporting, which, in turn, enables
E
better decision making.
Risk and Criticality Models. Using risk and criticality
models and analysis are key elements of proper assetmanagement practices, and programs help an asset manager
determine which infrastructure is critical to the organization.
They can also be used to rank and rate the level of business
risk associated with all of the infrastructure stock. This ranking can be achieved at the organizational level, the asset category level, the individual asset level, and the asset component
level. It becomes invaluable when limited internal resources
are being used to try to address a significant number of field
needs or priorities. A robust risk model will assist with prioritization of available resources, including:
n
n
n
Ensuring vital services are available.
rioritizing and streamlining inspection and condition
P
assessment programs.
rioritizing and optimizing capital budget processes
P
and program delivery.
n
n
nsuring that available money and
E
resources are applied to the right
asset at the right time.
stablishing attainable levels
E
of service.
Investment in infrastructure
depends on a number of
elements, including political
considerations and risk
tolerance in individual
municipalities.
Life-Cycle Management. Municipalities can establish truly optimized
investment levels and make the best
use of public funds by properly managing the life-cycle of infrastructure
components, networks, and portfolios.
Accomplishing this requires an understanding of the types of maintenance activities and cycles,
preventative maintenance activities, timelines for application
and rehabilitation activities, and timelines for application
and replacement activities for each asset class. In addition,
jurisdictions should document the cost for the activities and
perform a cost-benefit analysis to determine which activities
provide the best value for money.
Financial Strategy. To be effective, an asset management
program has to be integrated with financial planning and
long-term budgeting. Governments need to develop a comprehensive financial plan before they can identify the financial resources required for sustainable asset management
based on existing asset inventories, desired levels of service,
and projected growth requirements. The financial strategy
should define the relationships between maintenance/capital requirements, debt strategy, reserve strategy, and annual
revenue opportunities/strategies. The end result is a series of
recommendations on the necessary near-term steps for managing the long-term budget requirements. At a high level, the
financial strategy should include:
n
n
n
n
n
Development of scenarios for consideration.
n
Level of Service Frameworks.
Finally, governments need to develop
desired levels of service; these are
high-level indicators comprising many
factors that establish defined quality
thresholds at which municipal services
should be supplied to the community.
They support the organization’s strategic goals and are based on customer
expectations, statutory requirements,
standards, and the municipality’s financial capacity to deliver
those levels of service. They typically involve a review of strategic and municipal goals, legislative requirements, expected
asset performance, community expectations, and availability
of finances. Customers will use the levels of service to understand the proposed type and level of service to be offered; to
identify the costs and benefits of the services offered; to assess
suitability, affordability and equity of the services offered; to
measure the effectiveness of the asset management plan; and
as a focus for the asset management strategies developed to
deliver the required level of service.
n understanding of the costs associated with investing
A
in assets (new, renewal, maintenance, and operations).
n understanding of the various costs associated with
A
accounting for assets (historical, replacement,
and depreciated).
etrics for tracking assets and costs for both operational
M
and management purposes.
sset management plan financial requirements that are
A
based on replacement costs and desired levels of service.
An analysis of the municipality’s financial capacity.
October 2016 | Government Finance Review 13
Municipalities are embracing the
cross-disciplinary long-term approach
in defining their target investment levels and developing a well-rounded
asset management program that can
withstand shifts in politics. The financial strategy is one component of a
multiyear approach, rather than the
ultimate pursuit, of a well-designed
asset management roadmap.
As governments have
increased their commitments
to tackling their infrastructure
deficits, advances in asset
management processes,
technology, and knowledge
have also provided a great deal
of data organizations can use
for decision making.
In the past, estimates of infrastructure deficits were sometimes overstated because they were derived from
survey-based studies rather than a systematic asset-by-asset aggregation of
data, or they relied on incomplete
field inspection information. More precise data on the physical health of infrastructure, the establishment of long-term
capital programs, and more refined business processes mitigate the challenge of infrastructure management and make
it more manageable. Increased communication and alignment between the finance and public works/engineering
departments is also needed to implement a more inclusive
approach. In addition to technical expertise, elected officials
also need to understand this challenge and be thoroughly
involved in addressing it.
CONCLUSIONS
Most municipalities are lagging in all core elements of a
modern and inclusive asset-management program. Many
14 Government Finance Review | October 2016
have only a basic proficiency in organizational cognisance, financial strategy, and levels of service. With a new
approach and a shift in philosophy that
views asset management as an ongoing program and a critical component
of corporate strategies, governments
can elevate their asset management
programs without overburdening staff
and compromising other priorities. y
Notes
1. The Canadian Infrastructure Report Card,
2016. (canadianinfrastructure.ca)
2. 2013 Report Card for America’s
Infrastructure, American Society of Civil
Engineers.
3. “The State of Ontario’s Roads and Bridges: An Analysis of 93
Municipalities,” Public Sector Digest, 2015.
ISRAR AHMAD is senior project manager of asset management at
the Public Sector Digest (PSD). In 2015, he served as lead analyst
and author of the State of Ontario’s Roads and Bridges, which provided Canada’s first non-survey-based infrastructure deficit estimates.
He serves as lead analyst and writer for PSD’s municipal asset
management plans. JOHN MURRAY chairs the Canadian Network
of Asset Managers and serves as PSD’s general manager of asset
management. He is also project lead for PSD’s Asset Management
Roadmap initiative. Prior to Joining PSD, Murray was manager of
asset management at the City of Hamilton, Canada, as for nearly
two decades.